Four Deals Primed for Warren Buffett's $40 Billion War Chest

Buffett bulks up in utilities

Buffett and his top lieutenant Charlie Munger noted at the company's annual meeting that the company's utility arm, MidAmerican Energy, would look to spend $100 billion in the next 10 to 15 years, making utilities an obvious but unheralded part the company's future M&A plans.

While much of that spending is likely to consist of capital expenditure as the cash-intensive utility business serves as a return-generating sink for all that Berkshire cash, the $100 billion estimate leaves room for strategic deals, and could fit with MidAmerican's recent acquisitive ways. Berkshire could swallow an additional utility company, like PG&E (PGC) or NRG Energy (NRG).

In recent years, MidAmerican Energy has tried to cut large utilities deals, offering $4.7 billion for Constellation Energy (CEG) amid a broad market slump in September 2008. However, MidAmerican withdrew the bid in December after Constellation divested some nuclear businesses to Électricité de France for $4.5 billion. Constellation Energy was eventually sold to Exelon (EXC) in a deal that received Department of Justice approval last December.

Recently, MidAmerican Energy cut multiple deals to buy solar energy plants being built by First Solar (FSLR). In two December deals, MidAmerican bought controlling stakes in First Solar's Agua Caliente and Topaz plants, which have multi-year power purchasing agreements with regulated utilities like NRG Energy (NRG) and PG&E (PGE), respectively. An acquisition of either utility could only further MidAmerican's growth and its push into alternative energy.

At a market cap of over $18 billion, PG&E would be right at Berkshire's "elephant gun" parameter, while NRG's near-$5 billion market cap would be easily digestible.

For MidAmerican, the move into solar energy isn't so surprising. MidAmerican is the largest wind energy provider in the U.S. and expects to generate nearly 30% of its capacity from renewable sources by the end of 2012.

For more on utilities M&A, see Fitch Ratings' pick of 10 dividend rich, deal ready utility stocks.

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